Rational Expectations: Not UPI vs Cards, it’s about credit

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Published: December 10, 2018 4:56 AM

UPI payments catching up with cards fast, but the real success is what it and e-tail/GST, etc, are doing to democratise credit

UPI payments surged due to their sheer convenience, low costs and the spread of UPI QRs and even Bharat QRs.

In November 2016, when demonetisation took place, UPI-based payments were just 1.7% of the payments made to merchants (Point of Sale, in jargon) using debit/credit cards—Rs 1,000 crore versus Rs 58,734 crore. Even this, though, wasn’t strictly comparable as a negligible proportion of UPI payments was made to merchants—this is around 25-35% today—and most were just person-to-person transfers. So when, in September 2018, UPI rose to Rs 59,835 crore (a jump of 60 times) compared to Rs 91,942 crore for cards at PoS (a jump of 1.6 times), the most obvious conclusion is that, within a few years, UPI will finish off cards (see graphic).

Not surprisingly, this was the topic of a debate at the Express IT Awards last week.UPI payments surged due to their sheer convenience, low costs and the spread of UPI QRs and even Bharat QRs. A UPI Quick Response (QR) code is generated by the app you use—a bank app or Google Pay or WhatsApp, etc—and can be printed and scanned and put in your shop; instead of paying by card, the customer simply scans the code with her phone and makes the payment. Add in similar QR codes for cards, and you have a Bharat QR that allows card payments via the phone instead of the traditional card reader. While a Paytm QR code, say, can only be used if you have a Paytm account, a UPI QR can be used to make a payment from nearly a hundred apps, from Google Pay to WhatsApp, Bhim, various bank apps, etc.

So, apart from UPI payments costing a fraction of what card payments do—and, to promote digital payments, the government pays even this for small-value transactions—there is no cost of the card-reader either. But there are very few UPI QRs with merchants as opposed to, say, Paytm or Mobikwik QRs. Ideally, banks should be popularising UPI QRs, but this is easier said than done. While a Paytm spent thousands of crores to build up a network of dealers who accepted its payments—and used its QRs—no single bank has this kind of money to spare. More so, since, most of them feel that WhatsApp or Google Pay—with their cash-backs and freebies—will walk away with a major part of the market. Both companies, presumably, will find a way to monetise the investments they are making; with stretched balance sheets, however, few banks are willing to make the kind of effort needed. If a 2016 Visa study (goo.gl/BVRSp2) is right in estimating the cost of cash being as high as 1.7% of GDP, though, the government would benefit by spending to ensure most merchant outlets have Bharat QRs, to give attractive discounts for using UPI, etc.

While popularising UPI QRs remains an important issue, the growth of flow-based lending will give a fillip to UPI. Right now, a very small proportion of merchants gets bank credit, partly because they also prefer to deal in cash. With demonetisation and GST leading to more formalisation, however, more merchants are willing to use UPI or cards. In addition, a host of fintechs are working on creating lending models based on cash flows. So, if a small merchant uses UPI for both purchases and sales and gives this data to its bank, the bank may be able to lend it money. SBI managing director PK Gupta, in fact,said his bank was using the e-way bill generated on the GST portal as due diligence while giving truckers loans for every trip they made—from financing trucks to financing each trip, as it were! MSMEs selling on Amazon/Flipkart, similarly, have been able to submit details of these cash flows to fintechs/bankers and get loans; in the same way, the prospect of getting cheaper loans if there is a payments history to show is likely to entice more merchants to start using UPI QRs or Bharat QRs.

At least two of the panelists at the Awards—iSPIRT co-founder Sharad Sharma and PwC’s fintech leader Vivek Belgavi—pointed out (goo.gl/22MAaD) that the issue went beyond UPI vs cards, it was really about democratising credit. In the case of truckers getting bank credit using GST data, a UPI payment or bank-transfer will get made at the end of the trip, but more important is the fact that a trucker who probably lived off informal and expensive credit has now been brought into the formal credit sector thanks to the availability of data, whether via GST or UPI or Cards is irrelevant.

Rather than getting into cards vs UPI, Sharma said, creating a payments system that is open was more important – anyone can use UPI, unlike closed systems like Visa and Master that tend to also extract monopoly rentals. Sharma said that Aadhaar and UPI were examples of India creating ‘public goods’ and this expertise could well be something it could offer other countries; IT minister Ravi Shankar Prasad, the chief guest, said he and external affairs minister Sushma Swaraj were working on this.

Sharma gave examples of how similar open architectures could lead to a huge transformation in how India operated. Health Stack (goo.gl/qrfg1v), for instance, will revolutionize India’s healthcare since it envisages a centralized health record for all citizens and, given this will also contain all diagnoses- and treatment-data from clinics/hospitals across the country, it is a wealth of information that can be analysed—with even artificial intelligence tools—to get meaningful insights. The open architecture, as in the case of UPI, will allow innovators to build new tools that ride on it. What started off as a simple UPI-vs-Cards debate metamorphosed into something much bigger; the Express IT event, and the participants, were richer for it.


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